Interest Only Mortgages - Skipton Building Society (2024)

FAQs

Is it still possible to get interest-only mortgages? ›

Interest only mortgages are available for home buyers, although they're not as common as repayment mortgages. To get one, you'll need a plan in place to repay what you owe when the mortgage ends. As with any other mortgage, whether you're approved is at the lender's discretion.

Fewer lenders offer them, and banks have set stricter requirements to qualify. Banks generally only offer an interest-only mortgage to a well-qualified borrower. You'll likely need: A credit score of 700 or more.

Disadvantages of an interest-only mortgage

At the end of the mortgage term, you will still owe the lender the initial amount you borrowed. So, while you may be enjoying smaller monthly repayments, you'll need a plan in place for how you will pay back the capital.

Like all major UK building societies, Skipton can be strict towards customers who don't fit their criteria for a mortgage. They do offer mortgages to people with certain types of minor bad credit, but issues such as debt management plans, recent defaults and payday loan usage can trigger an automatic rejection.

More stringent requirements.

The down payment and credit score requirements are typically harder to meet, compared with traditional mortgage requirements. Delay in building equity: You won't build equity in your home unless you make extra payments toward the principal during the interest-only period.

Interest Only mortgages may be suitable for you if you:

Are looking to borrow a maximum of 70% of the property value. Are looking for a maximum mortgage term of 25 years. Have an acceptable repayment strategy in place to repay the capital lump sum at, or before, the end of your mortgage term.

Or, if you use a specialist or private lender, you may be able to reach as high as a 75% loan to value interest only mortgage, but only on a case-by-case basis. And the more you borrow in comparison to the value of your property, the higher interest rates you'll pay.

Interest-only repayments are available for a set period over the life of the loan. Up to 5 years on an Owner-occupied loan and 10 years on an Investment loan.

If you purchase your home with an interest-only mortgage, there will be less equity, or less cash, to access if you must take out a second mortgage. Second, your monthly payments will be relatively high once you begin paying back the principal. This will cause a considerable shift in your monthly budget.

Once your mortgage term is over, you'll still owe the lender the same amount you initially borrowed – so you'll need to either pay it back or remortgage your home. Before lenders give you an interest-only mortgage, they may need to see evidence of your ability to pay off the full amount at the end of the term.

Who benefits from interest only mortgages? ›

Interest-only mortgages are better suited to borrowers with lots of cash in reserve; borrowers who see their income significantly rising in the near future; and those disciplined enough to redirect income spikes toward paying down the principal.

You have the option of making principal payments during your interest-only payment term, but once the interest-only period ends, both interest and principal payments are required. Keep in mind that the amount of time you have for repaying the principal is shorter than your overall loan term.

Performance continues to be strong, with pre-tax profits of £47.3m (2022: £39.9m); this reflects the benefits to income and margin from the rising interest rate environment, whereby SIL's net interest margin has increased to 2.37% (2022: 2.20%), whilst the ratio of administrative expenses to income remained stable at ...

Skipton Building Society is a well-established provider with market-competitive rates and good customer service scores, offering a range of different mortgages.

If you're applying for a mortgage with them, it's important to have a clear credit record and a stable income. They do show flexibility for minor credit issues but can be strict with significant debts or complex property types.

An interest-only mortgage has its benefits and drawbacks. If you're looking for lower monthly payments or a short-term living arrangement, this could be the right option for you. Keep in mind that payments towards your principal are inevitable down the line.

You can borrow up to 85% loan to value (LTV) on a Capital Repayment basis. But only 75% can be on an Interest Only basis by using an additional repayment strategy.

NONTRADITIONAL mortgages, such as interest-only and negative amortization loans, became very popular in the run-up to the 2007–2008 financial crisis (Dokko et al., 2019). These products were associated with an increased risk of default during the Great Recession, even among prime U.S. borrowers (Amromin et al., 2018).